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Tuesday, November 24, 2009

Boring Action

While the market has maintained a relatively high level, there have been stock that were thrown away.

CHK and PWR are examples of, IMO, big boys dumped for whatever reason. (Maybe they lost patience in the NatGas theme or Alternative Energy build out.) I think throwing these two stocks away is a mistake, and at current levels very attractive.

The market seems to just want to churn, but the potential upside would not surprise me. The churning aspect may come from the financials. Them breaking down does not seem likely, but them rallying hard from here is not likely either. They should be trade bound until the end of the year, but I do think they are at the low end of their trading range. A strategy that may pay out is buying the stock, and selling short-term calls against the position for income. I will do it with JPM, and will post what I do.

BKE - GS has them as a sell, and from what I figure it was due to margins topping out. I do not generally agree with the reason, but does suck away at the momentum of the stock, obviously. Right now it is trading near a support level, and already inexpensive. But if we take Goldman's report for what its worth, BKE should be trading at a depressed multiple due to the peek in margins.

However, despite the downgrade, trading for BKE over the years has been fairly consistent. The trailing PE usually has a peak trading range of 14-15, and the low end is around 10. (Meaning buy when the trailing PE is around 10.) Regardless, keep in mind, this is a slow and steady stock, whose management owns a lot of the company. They play for the long-term, and smart.